Question

Prompt Corrective Action allows the RBI to-

• A. Pose certain restrictions on banks
• B. Liberalization of norms
• C. Give relaxations to banks
• D. None of the above

Answer 1

The correct option is A Pose certain restrictions on banks

Explanation: PROMPT CORRECTIVE ACTIONS
To ensure that banks don't go bust, RBI has put in place some trigger points to assess, monitor, control and take corrective actions on banks which are weak and troubled. The process or mechanism under which such actions are taken is known as Prompt Corrective Action, or PCA.
The PCA is triggered when banks breach certain regulatory requirements like minimum capital, return on asset and quantum of non-performing assets.
Example:
Banks are not allowed to re new or access costly deposits or take steps to increase their fee-based income. Banks also have to launch a special drive to reduce the stock of NPAs and contain generation of fresh NPAs. They are sometimes also not allowed to enter into new lines of business. RBI will also impose restrictions on the bank on borrowings from interbank market.